For those in accounting, arguably the most critical point comes when it’s time to close the year. Figures are finalised, accounts are reconciled and the year-end close marks the time when the annual financial statements can be calculated and prepared.
What is the year-end close?
Your fiscal year-end may not be the end of the calendar year – or even the end of the tax year, on April 5th. But whenever it is, it’s the crucial time that (things are squared away), accounts are finalised and the financial year comes to an official close. You can then calculate the year’s financial statements and start preparing your submissions for filing with HMRC and Companies House.
How to close the year
To successfully close the year, a company needs to undertake a number of tasks. These actions transfer all balances from the year’s profit and loss onto your balance sheet and allow you to prepare your statutory accounts.
Statutory accounts include:
- The balance sheet or statement of financial position – this shows the total values of your assets, liabilities, capital and reserves as at the last day of your financial year
- The profit and loss account or income statement – this shows your sales, costs and the profit or loss you’ve made for the financial year
To close the books at the end of the year, you first need to zero out both the accounts receivable (AR) and accounts payable (AP) accounts. Then you put the company’s net profit or loss into the retained earnings accounts on your balance sheet.
This sounds simple, but involves all sorts of actions. You need to ensure you have all of your expenses in order – if you claim for everything you are entitled to, then your tax liabilities are reduced.
You’ll also need to chase for payment of any outstanding invoices, so that you can reconcile your accounts. Rounding up the debts you are owed makes your year-end financial picture more accurate.
Of course, you’ll also need to ensure each of your entities and departments also has submitted or recorded all the relevant paperwork that backs up the accounts: invoices, receipts and other records.
One the year is closed, no further transactions should be created or assigned to the year – so all your figures must be finalised before you close your fiscal year.
How NetSuite simplifies your year-end close
Closing the year manually is an arduous process, so many companies will employ accounting software that does it automatically.
Accounting software like NetSuite can automatically close the AR and AP accounts at the year-end and then go on to add your net profit/loss to the retained earnings account.
The year-end process runs you through a checklist, ensuring you complete all the necessary actions, taking the pressure off and allowing you to efficiently close your company’s books. The checklist is customised to your own operation, bringing in certain elements according to your business. So, for example, warehousing and distribution companies will be able to review negative inventory, and companies with global operations can revalue open foreign currency balances and calculate consolidated exchange rates.
Once the checklist is complete, you simply close the year end and can then prepare your financial statements.
Year-end can be a stressful and overwhelming time for company directors. To see just how easy it can be with NetSuite, watch our quick overview video of how to close the financial year using NetSuite.
If you would like advice on year-end and month-end closing, book an appointment with one of our experienced consultants.
Next month, we are also running a free webinar on reconciliation. It takes place on 8th September at 2pm. To register for a place, click here.